Rent depends on their earnings

Source : New Paper - 1 Dec 2008

Popular eateries at East Coast Seafood Centre up in arms over NParks’ new rental scheme

The more money you make, the more rent I will collect.

That seems to be the message being sent out to tenants at the popular East Coast Seafood Centre by the landlord National Parks Board (NParks). And some seafood restaurants owners are not happy.

The restaurants at the centre include Long Beach, Red House, Jumbo, Hawaii and No Signboard seafood restaurants.

In the past, they were charged rental at a fixed monthly rate. But NParks has revised its rental scheme since July.

Restaurant owners have been asked to pay a percentage of their monthly gross turnover (GTO) or a base rental rate, whichever is higher.

This base rental is also much higher than what they previously paid. The GTO percentage is between 10 and 13.5 per cent.

As all the owners are not charged the same rates, the new scheme has increased their rental by varying amounts. The rates are based on factors such as location of the units and how well the restaurants are doing.

For example, if the old fixed rent was $20,000, the increased base rent would be about $35,000.

With the GTO component, if the restaurant’s earnings are $600,000 for the month, rent would be about $60,000.

Rentals at the East Coast Seafood Centre are reviewed every three years.

The owners who spoke to The New Paper did not want to be identified as they are still in negotiations with NParks.

One owner said: ‘It’s bad enough that the new base rate has increased rental by more than 60 per cent.

‘What’s worse is that now, with the new rental scheme, we pay almost twice as much per square foot as we did before.’

One of their gripes with the GTO component, tied to turnover, is that NParks has not done any advertising or marketing for them.

Another restaurant owner said: ‘The East Coast Seafood Centre is not a place where you just happen to be at any time of the day. We have big advertising and marketing budgets to promote our seafood and get customers here.

‘So the more business we bring in ourselves, the more rental we pay? It doesn’t seem fair.’

All the restaurant owners stressed that they have always had a harmonious landlord-tenant relationship with NParks.

But they are asking for more leeway in rental charges, so they can sell seafood at more reasonable prices.

One said: ‘If we were charged just a fixed, increased base rate, it’s not the best of situations when the economy is down, but I find it still acceptable.

‘With GTO, we may be unprofitable in the long run with our current prices and the amount of discounts given (to our customers).’

NParks explained that the revised rents are based on independent market valuations.

The rents would have been much higher without the GTO component.

Its spokesman said: ‘The independent valuations take into account whether the businesses are doing well. The higher rental reflects that they are doing well.

‘The operators can verify the valuation using their own valuers if they wish to do so.’

On doing its part to attract business, the spokesman said: ‘We do spend a substantial amount of money improving and maintaining our parks, and to make them more vibrant. These do benefit the business amenities in our parks.’

The new rental scheme is to give businesses a fairer deal.

Mr Chuah Hock Seng, director of NParks, said: ‘The variable component is to give the operator a buffer when the market situation is not so good.

‘If the revenue drops below a certain level, the operator pays a lower rental than if the rental is totally fixed. The new rentals are fair, based on the earnings of the current outlets.’

Common in retail sector

When asked, Knight Frank’s deputy managing director, Mr Danny Yeo, said that the GTO rental scheme is commonly practised in the retail sector. This is especially so in shopping malls, where landlords charge an advertising fee to do promotions for their tenants.

Mr Yeo said: ‘For the GTO scheme, advertising is usually a shared responsibility between landlord and tenants.’

Mr Yeo also explained that the GTO rental model would be a better system for tenants.

‘There is more transparency because it shows which businesses are doing well and which are not. This helps the landlord help those who need the help.’

He emphasised that for the GTO rental scheme to work effectively, ‘base rent has to be reasonable and fair’.

One restaurant owner who recently moved into the seafood centre said she would prefer to be charged the GTO rental scheme.

She said: ‘We are new, so our earnings are not high. To pay the newly increased rent is very taxing on us. If it’s GTO, it’s fairer.’

For her, rental is a fixed rate as her restaurant’s earnings do not exceed the cut-off to qualify for the GTO scheme.